How to borrow against stocks, step by step.

Borrowing against stocks means pledging listed shares or funds as collateral for a loan — a Lombard loan — rather than selling them. A lender advances a percentage of the portfolio’s value, the loan-to-value ratio; you keep ownership, dividends and any upside, and you repay from liquidity events rather than to a fixed monthly schedule.

What “borrowing against stocks” means

Borrowing against stocks — more precisely, against a portfolio of listed shares and funds — is the practice of using those securities as collateral for a loan instead of selling them to raise cash. In private banking the instrument is called a Lombard loan; in institutional and US markets the same thing is called securities-backed lending, or a share-backed loan. Whatever the label, the shape is identical: you pledge the securities, the lender advances cash against a fraction of their market value, and you keep the assets.

The distinction from a sale matters. A sale converts the position to cash and ends your exposure to it — you forgo any further rise, you lose the dividend stream, and, where the shares stand at a gain, you may crystallise a tax charge. A pledge does none of these things. The shares remain yours; the loan simply sits against them until you repay it, at which point the pledge is released and your holding is unencumbered once more.

Because the loan is secured on liquid, readily valued collateral, it can usually be arranged more quickly and more cheaply than an unsecured facility of the same size, and without the covenants a corporate lender would attach. That combination — keep the asset, raise the cash, price it keenly — is why substantial shareholders use it.

How the process works, step by step

From first enquiry to funded loan, a Lombard facility runs through five clear stages. The detail varies with the size of the position and the markets involved, but the sequence does not.

Eligibility & acceptable collateral

The first question is whether the collateral qualifies. Lenders look for listed securities that are liquid, transparently priced, and free to be pledged — typically shares quoted on a recognised exchange, investment-grade bonds, and selected funds. The holder must have clean title, the ability to grant a pledge with no existing charge, lock-up, or restriction that prevents it, and, where the position is large or the holder is an insider, a plan for any disclosure the position attracts. At this stage the lender forms an initial view: is this collateral it can value and, if it ever had to, realise.

Valuation & LTV

Next the portfolio is valued and an advance rate set. The loan-to-value ratio — the percentage of market value the lender will lend — is the single most important term. It reflects the quality of the collateral: a broad, liquid book of large-capitalisation shares supports a higher advance than a single concentrated or thinly traded holding, because it is easier to value and to sell. Across listed equity, advance rates illustratively span a broad ~20%–65% envelope; where any individual position sits within it is a matter of liquidity, volatility, concentration, and currency. Our note on how much you can borrow against shares sets out the variables in full.

Drawdown & currency

With the LTV agreed, the pledge is documented and the collateral is moved into, or blocked at, an acceptable custodian. Once the security is in place the loan is drawn — as a lump sum or as a committed line you draw as needed. The currency is yours to choose: it is common to borrow in a currency other than the one the shares are denominated in, for instance to draw sterling or US dollars against a Swiss- or Hong Kong-listed holding. A currency mismatch between the loan and the collateral is manageable, but it is a variable the lender will price and monitor, since it moves the effective LTV.

Ongoing monitoring

For the life of the facility the lender marks the collateral to market. As the portfolio rises the headroom grows; as it falls the LTV rises toward the agreed threshold. Interest usually accrues on the drawn balance and may be paid periodically or rolled up, in which case it too lifts the loan and the LTV over time. Nothing is required of you while the ratio stays within its limits — but this is the stage at which a sustained fall in the shares can prompt a margin call, which is why the monitoring line is the one to watch.

Repayment

A Lombard loan is typically repaid not on a fixed amortisation schedule but from a liquidity event — the sale of part of the position, a dividend or bonus, the proceeds of the transaction the loan funded, or a refinancing. Interest is serviced or accrued along the way; the principal is returned when it suits, within the term. On repayment the pledge is released and the collateral is unblocked. Facilities are commonly written for a set term and rolled by agreement, so the arrangement can be as short-dated or as enduring as the purpose requires.

What you can and can’t pledge

Not every holding makes good collateral. What lenders accept: listed shares on recognised exchanges, government and investment-grade corporate bonds, money-market and selected mutual funds, and diversified portfolios assembled from these. What they discount or decline: unlisted or pre-IPO stock, shares in lock-up or subject to a contractual restriction, very thinly traded small-capitalisations, and positions so concentrated in a single name that the lender could not sell them without moving the price. A holding can be eligible in principle yet attract a conservative advance rate in practice; eligibility and LTV are two questions, not one.

Within the eligible universe, the advance rate is then adjusted for the character of each holding. Exchange-traded and money-market funds are typically treated favourably; single shares attract a wider haircut as volatility and concentration rise; and a position large enough to represent several days of the stock’s normal trading volume is discounted further, because it could not be realised quickly without moving the price. The practical effect is that two portfolios of identical headline value can support quite different loans, depending on what they are made of.

How much you can borrow

The amount available is the market value of the eligible collateral multiplied by its advance rate. A diversified portfolio attracts a higher blended rate than a single stock; a large, liquid holding, more than a small or volatile one. Rather than quote a number in the abstract, we set out the full calculation — and the factors that move it up or down — in how much can you borrow against shares. As a rule, treat the headline figure as a ceiling and borrow beneath it: the gap between what you can borrow and what you should is your buffer against a margin call.

Costs and interest

Pricing is straightforward in structure: a reference rate — the relevant short-term market rate for the currency — plus a spread that reflects the collateral, the size, and the tenor. Interest is charged only on the drawn balance, so an undrawn committed line costs little to hold. There is no published rate card; a Lombard loan is priced to the specific transaction. The mechanics of pricing, and the arrangement and custody costs that sit alongside the interest, are covered in Lombard loan interest rates and costs.

Risks, in one paragraph

The principal risk is simple and must be understood before you borrow: if the pledged shares fall in value, the loan-to-value ratio rises, and beyond an agreed threshold the lender can issue a margin call — a request to add collateral or repay part of the loan — and, if it is not met, sell some of the collateral to restore the ratio. Rising interest, a falling collateral currency, or a suspension in the stock can each compound the effect. None of this is a reason to avoid the instrument; it is a reason to structure it with a margin of safety. We treat the mechanics, the warning thresholds, and the ways to reduce the risk in what happens if your shares fall.

Who this suits

Borrowing against stocks suits a holder with a substantial, liquid, listed portfolio who needs cash and would rather not sell — a founder or executive with a concentrated stake, a controlling shareholder, a family office, or a private investor managing timing around a liquidity event or a tax bill. It suits those purposes far better than it suits someone reaching for maximum leverage on a single volatile stock. Used as a liquidity tool, with a conservative advance rate and a clear repayment source, it turns a valuable but illiquid portfolio into working capital while leaving the portfolio intact. Our main guide to what a Lombard loan is sets the instrument in its full context.